1.(C) Summary. In an April 7 meeting with Foreign Minister
Samuel Santos on a range of bilateral issues, Ambassador
raised ref a points on the Merida Initiative and pressed the
GON to become more engaged in the process. Ambassador also
expressed concerns about the GON's alternative proposal for a
USD 1 billion line of credit to fund counter-narcotics
activities in Central America, to be paid for via asset
forfeiture. Santos and Vice Foreign Minister Coronel Kautz
criticized the Merida Initiative as "too modest" and pressed
for consideration of their proposal as a better regional
approach that would demonstrate that the USG can work with
its neighbors. Santos also provided a letter proposing the
creation of an Ad-Hoc Commission with the U.S., Nicaragua and
Honduras, to further develop and promote Nicaragua's
counter-Merida proposal. The GON appears to determined to
push their counter-proposal and is increasingly reluctant to
engage in constructive or substantive discussion on the
Merida Initiative absent further consideration for their
concept. End Summary.

2. (C) Ambassador met with FM Santos on April 7, at the
request of the Foreign Ministry, to discuss a range of
bilateral issues. Also participating in the meeting was Vice
Foreign Minister Manuel Coronel Kautz and Legal Affairs Chief
Cesar Vega. The Embassy has tried repeatedly over the past
several weeks to meet with the MFA to deliver ref a points on
the Merida Initiative. However, the MFA declined all meeting
requests and eventually proposed a meeting between the
Ambassador and Santos with the aim of discussing further the
Nicaraguan counter-Merida proposal. The GON has proposed
(ref b) that the USG provide backing for a USD 1 billion loan
to the SICA countries through the Central American Economic
Integration Bank (BCIE) to be administered by USAID. The
terms of the loan would be paid by funds derived from the
liquidation of seized narcotics and organized crime-related
assets. The fund to be created by the loan would have a
Control and Distribution Committee consisting of one Central
American representative, one OAS representative, and one USG
representative.

3. (C) Ambassador delivered ref a points in support of the
Merida Initiative and urged the GON to take a more active
role in the process, noting that the GON has not participated
in recent SICA meetings. Ambassador noted that we have
received the GON's counter-proposal and, though it was being
reviewed in Washington, that there were some initial areas of
concern. In particular, it would be difficult to back such a
loan and that general policy is to avoid using loans as
development assistance. In addition, such a program likely
could not and would not be overseen by USAID given certain
legal restrictions, which raises fundamental concerns about
how the program could be carried out. Finally, the proposal
that the GON is considering would take years to develop and
implement. We, on the other hand, have already requested the
initial funding for the Merida Initiative and the immediate
support is likely to be significant and effective.

4. (C) Coronel Kautz countered that there continues to be a
misconception surrounding Nicaragua's counter-Merida
proposal. "We are not asking anything of the United States,"
he argued. "We are only proposing that the U.S. help us
obtain the credit." It will be "the criminals who pay for
it." Supporting Nicaragua's proposal would be a demonstration
that the U.S. and Central America can work together and that
the U.S. understands and values the views of its neighbors.
"You are the market," he continued, "Colombia and others are
the providers and we are stuck in the middle." The Merida
Initiative, on the other hand, will "take years" to get
started and too much money is focused on Mexico. He also
expressed annoyance that Nicaragua's fellow SICA members seem
"only willing to listen to 'gringo' proposals."

5. (C) Santos handed the Ambassador a letter (faxed to
WHA/CEN) that proposed the U.S., Nicaragua and Honduras
create an "Ad-Hoc Commission" to analyze, develop and promote
Nicaragua's proposal. Coronel Kautz complained that the
other Central American governments have not had "the
patience" to work on the Nicaraguan proposal and believes
that the Ad-Hoc group could help get the others to approach
it more seriously. Coronel Kautz suggested that the group
could be led by WHA/CEN Director Feeley and proposed a
meeting prior to a planned mid-May meeting of the Central
American states in El Salvador.

6. (C) Comment: The Ortega government is trying to leverage
new support for its counter-Merida proposal. They clearly
are resistant to the Merida Initiative and would like to find
some way to minimize it and put themselves at the center of a
counter effort that is generated in Central America. In a
February 5 meeting with INL DAS McCampbell, Coronel Kautz
(who appears to be the point-person on the issue) dismissed
the Merida Initiative as "nothing - it doesn't mean much to
Nicaragua. It is so small it doesn't even help."
Furthermore, the GON has written a letter to the SICA
Secretariat decrying the U.S. proposal as "inadequate" and
declining to participate in meetings where it is discussed.
It appears they are not getting traction individually with
their neighbors and now want to co-opt the USG into appearing
to support their plan. That said, if we wish to keep the GON
engaged on Merida, we may well have to humor them and it
hence will be necessary to arrange some form of a tripartite
meeting to consider again the Nicaraguan proposal, perhaps on
the margins of the next round of MANPADS negotiations. We
recommend that the Department seek the Hondurans' views on
this issue. We also suggest that Washington agencies
undertake a preliminary analysis of the feasibility of the
GON's plan as the basis for our position going into any
tripartite session. Topics to look at might include an
estimate of possible seized asset flows, the willingness or
ability of the IFIs to finance security projects, and the
ability of SICA countries to actually dispose of and monetize
seized assets.
TRIVELLI

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